☒ QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30,
2019

or

☐ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________
to _____________

Commission File Number: 000-55925

AERKOMM INC.

(Exact name of registrant as specified in
its charter)

Nevada

46-3424568

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

923 Incline Way, #39, Incline Village,
NV 89451

(Address of principal executive offices,
Zip Code)

(877) 742-3094

(Registrant’s telephone number, including
area code)

(Former name, former address and former
fiscal year, if changed since last report)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Not applicable.

As of August 13, 2019, there were 9,423,244
shares of the registrant’s common stock issued and outstanding. This number reflects a reverse split in the ratio of 1 for
5 effective January 16, 2019.

AERKOMM INC.

Quarterly Report on Form 10-Q

Period
Ended June 30, 2019

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

33

i

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

AERKOMM INC.

CONSOLIDATED FINANCIAL STATEMENTS

Page

Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

2

Consolidated
Statements of Operations and Comprehensive Loss for the Three-Month and Six-Month Periods Ended June 30, 2019 and 2018 (unaudited)

3

Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2019 and 2018 (unaudited)

For the Three-Month and Six-Month Periods
Ended June 30, 2019 and 2018 (Unaudited)

Three Month Period Ended June 30,

Six Month Period Ended June 30,

2019

2018

2019

2018

Net sales

$

1,599,864

$

-

$

1,599,864

$

-

Cost of sales

1,587,222

-

1,587,222

-

Gross profit

12,642

-

12,642

-

Operating expenses

1,574,522

2,135,585

3,622,811

3,586,484

Loss from Operations

(1,561,880

)

(2,135,585

)

(3,610,169

)

(3,586,484

)

Non-Operating Income (Loss)

Foreign currency exchange gain (loss)

(120,504

)

7,444

(451,701

)

4,422

Other loss, net

(3,052

)

(1,990

)

(3,325

)

(3,190

)

Net Non-Operating Income (Loss)

(123,556

)

5,454

(455,026

)

1,232

Loss before Income Taxes

(1,685,436

)

(2,130,131

)

(4,065,195

)

(3,585,252

)

Income Tax Expense

-

-

3,235

4,062

Net Loss

(1,685,436

)

(2,130,131

)

(4,068,430

)

(3,589,314

)

Other Comprehensive Income (Loss)

Change in foreign currency translation adjustments

121,698

(6,616

)

465,294

(3,682

)

Total Comprehensive Loss

$

(1,563,738

)

$

(2,136,747

)

$

(3,603,136

)

$

(3,592,996

)

Net Loss Per Common Share:

Basic

$

(0.1821

)

$

(0.2513

)

$

(0.4398

)

$

(0.4281

)

Diluted

$

(0.1821

)

$

(0.2513

)

$

(0.4398

)

$

(0.4281

)

Weighted Average Shares Outstanding - Basic

9,253,953

8,476,857

9,250,631

8,384,956

Weighted Average Shares Outstanding - Diluted

9,253,953

8,476,857

9,250,631

8,384,956

See accompanying notes to the consolidated
financial statements.

3

AERKOMM INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Six-Month Periods Ended June 30,
2019 and 2018

(Unaudited)

Six Months Ended

June 31,

2019

2018

Cash Flows from Operating Activities

Net loss

$

(4,068,430

)

$

(3,589,314

)

Adjustments to reconcile net loss to net cash used for operating activities:

Depreciation and amortization

520,808

291,635

Stock-based compensation

659,591

659,264

R&D expenses transferred from inventory and construction in progress

416,231

-

Consulting expense adjustment to change in fair value of warrants

(159,900

)

-

Reversal of consulting expense and interest expense from warrants

(121,733

)

-

Changes in operating assets and liabilities:

Accounts receivable

(1,209,964

)

-

Inventories

(386,750

)

-

Prepaid expenses

39,858

(666,712

)

Other receivable – related party

-

46,743

Other receivable – others

1,158

(6,183

)

Temporary deposit – related party

100,067

-

Other current assets

(2,190

)

(2,046

)

Deposits – related party

2,462

(7,566

)

Deposits – others

(2,758

)

93,548

Accounts payable

1,587,222

-

Accrued expenses

743,910

(220,042

)

Other payable - related parties

(418,091

)

(166,919

)

Other payable - others

1,458,198

(1,252,209

)

Net Cash Used for Operating Activities

(840,311

)

(4,819,801

)

Cash Flows from Investing Activities

Prepayment on land and satellite equipment

-

(18,231,250

)

Purchase of property and equipment

(2,297

)

(148,502

)

Net Cash Used for Investing Activities

(2,297

)

(18,379,752

)

Cash Flows from Financing Activities

Repayment of short-term bank loan

-

(10,000

)

Proceeds from short-term loan - related party

194,600

-

Proceeds from long-term loan

47,742

-

Proceeds from issuance of common stock

6,047,630

23,223,979

Proceeds from subscribed capital

-

56,000

Issuance of stock warrants

5,000

492,367

Net Cash Provided by Financing Activities

6,294,972

23,762,346

Net Increase in Cash

5,452,364

562,793

Cash, Beginning of Period

88,309

21,504

Foreign Currency Translation Effect on Cash

465,294

(3,682

)

Cash, End of Period

$

6,005,967

$

580,615

Supplemental disclosures of cash flow information:

Cash paid during the period for income taxes

$

-

$

4,000

Cash paid during the period for interest

$

338

$

206

Non-cash Operating and Financing Activities:

Restricted stock deposit liability transferred to common stock

$

-

$

(1,644

)

Prepayment for equipment and construction in progress transferred to inventory

$

949,639

$

-

See accompanying notes to the consolidated
financial statements.

4

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 - Organization

Aerkomm Inc. (formerly Maple
Tree Kids Inc.) (“Aerkomm”) was incorporated on August 14, 2013 in the State of Nevada.
Aerkomm was a retail distribution company selling all of its products over the internet in the United States, operating in the
infant and toddler products business market. Aerkomm’s common stock is quoted for trading on the OTC Markets Group Inc.
OTCQX Best Market under the symbol “AKOM.” On July 17, 2019, the French Autorité des Marchés Financiers
(the “AMF”) granted visa number 19-372 on the prospectus relating to the admission of Aerkomm’s common stock
to list and trade on the Professional Segment of the regulated market of Euronext Paris (“Euronext Paris”). Aerkomm’s
common stock began trading on Euronext Paris on July 23, 2019 under the symbol “AKOM” and is denominated in Euros on
Euronext Paris. This listing did not alter Aerkomm’s share count, capital structure, or current common stock listing on the
OTCQX, where it is also traded (in US dollars) under the symbol “AKOM.”

On December 28, 2016, Aircom
Pacific Inc. (“Aircom”) purchased 140,000 shares of Aerkomm’s common stock, representing approximately 86.3%
of Aerkomm’s issued and outstanding common stock as of the closing date of purchase. As a result of the transaction, Aircom
became the controlling shareholder of Aerkomm. Aircom was incorporated on September 29, 2014 under the laws of the State of California.

On February 13, 2017, Aerkomm
entered into a share exchange agreement (“Exchange Agreement”) with Aircom and its shareholders, pursuant to which
Aerkomm acquired 100% of the issued and outstanding capital stock of Aircom in exchange for approximately 99.7% of the issued and
outstanding capital stock of Aerkomm (or 87.81% on a fully-diluted basis). As a result of the share exchange, Aircom became a wholly-owned
subsidiary of Aerkomm, and the former shareholders of Aircom became the holders of approximately 99.7% of Aerkomm’s issued
and outstanding capital stock.

On December 31, 2014, Aircom
acquired a newly incorporated subsidiary, Aircom Pacific Ltd. (“Aircom Seychelles”), a corporation formed under the
laws of the Republic of Seychelles. Aircom Seychelles was formed to facilitate Aircom’s global corporate structure for both
business operations and tax planning. Presently, Aircom Seychelles has no operations. Aircom is working with corporate and tax
advisers in finalizing its global corporate structure and has not yet concluded its final plan.

On October 17, 2016, Aircom acquired
a wholly owned subsidiary, Aircom Pacific Inc. Limited (“Aircom HK”), a corporation formed under the laws of Hong Kong.
The purpose of Aircom HK is to conduct Aircom’s business and operations in Hong Kong. Presently, its primary function is
business development, both with respect to airlines as well as content providers and advertisement partners based in Hong Kong.
Aircom HK is also actively seeking strategic partnerships whom Aircom may leverage in order to provide more and better services
to its customers. Aircom also plans to provide local supports to Hong Kong-based airlines via Aircom HK and teleports located in
Hong Kong.

On December 15, 2016, Aircom
acquired a wholly owned subsidiary, Aircom Japan, Inc. (“Aircom Japan”), a corporation formed under the laws of Japan.
The purpose of Aircom Japan is to conduct business development and operations located within Japan. Aircom Japan is in the process
of applying for, and will be the holder of, Satellite Communication Blanket License in Japan, which is necessary for Aircom to
provide services within Japan. Aircom Japan will also provide local supports to airlines operating within the territory of Japan.

Aircom Telecom LLC (“Aircom
Taiwan”), which became a wholly owned subsidiary of Aircom in December 2017, was organized under the laws of Taiwan on June
29, 2016. Aircom Taiwan is responsible for Aircom’s business development efforts and general operations within Taiwan.

On June 13, 2018, Aerkomm
established a new wholly owned subsidiary, Aerkomm Taiwan Inc. (“Aerkomm Taiwan”), a corporation formed under the
laws of Taiwan. The purpose of Aerkomm Taiwan is to purchase a parcel of land and raise sufficient fund for ground station
building and operate the ground station for data processing (although that cannot be guaranteed).

On November 15, 2018, Aircom
Taiwan acquired a wholly owned subsidiary, Beijing Yatai Communication Co., Ltd. (“Aircom Beijing”), a corporation
formed under the laws of China. The purpose of Aircom Beijing is to conduct Aircom’s business and operations in China. Presently,
its primary function is business development, both with respect to airlines as well as content providers and advertisement partners
based in China as most business conducted in China requires a local registered company. Aircom Beijing is also actively seeking
strategic partnerships whom Aircom may leverage in order to provide more and better services to its customers. Aircom also plans
to provide local supports to China-based airlines via Aircom Beijing and teleports located in China.

Aircom and its subsidiaries are
full-service, development stage providers of in-flight entertainment and connectivity (“IFEC”) solutions with their
initial market in the Asia Pacific region.

5

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 1 - Organization - Continued

Aerkomm and its subsidiaries (the “Company”) have not generated significant revenues, excluding non-recurring revenues from affiliates in
the second quarter of fiscal 2018, and will incur additional expenses as a result of being a public reporting company. Currently,
the Company has taken measures that management believes will improve its financial position by financing activities, including
through ongoing public offerings, short-term borrowings and equity contributions. On April 23, 2019, the Company filed a post-effective
amendment No. 2 (“POS AM No.2”) with the Securities and Exchange Commission (the “SEC”), to extend the
public offering to attempt to raise the then remaining $16.44 million of the originally registered public offering amount, as well
as the $9 million over-subscription option amount (see Note 11). On May 17, 2019, the Company filed a post-effective amendment
No. 3 with the SEC to further amend POS AM No. 2 and which was declared effective by the SEC on May 23, 2019. Furthermore, two
of the Company’s current shareholders (the “Lenders”) each committed to provide to the Company a $10 million
bridge loan (together, the “Loans”) for an aggregate principal amount of $20 million, to bridge the Company’s
cash flow needs prior to its obtaining a mortgage loan to be secured by a parcel of land (the “Land”) the Company intends
to purchase in Taiwan. The Lenders also agreed to an earlier closing of up to 25% of the principal amounts of the Loans upon the
Company’s request prior to the time that title to the Land is vested in the Company’s subsidiary, Aerkomm Taiwan, to
pay the outstanding payable to the Company’s vendors. On June 27, 2019, the Company closed an additional $6.46 million of
fund raising from the public offering. With the $9.98 million to be raised in the remainder of the Company’s ongoing public
offering and the $20 million in Loans committed by the Lenders, the Company believes its working capital will be adequate to sustain
its operations for the next twelve months.

On January 16, 2019, the Company
completed a 1-for-5 reverse split of the Company’s authorized, issued and outstanding shares of common stock, which was completed
by the filing of a Certificate of Change Pursuant to NRS 78.209 with the Nevada Secretary of State on December 26, 2018 (see Note
11). All of the references in these financial statements to authorized common stock and issued and outstanding common stock have
been adjusted to reflect this reverse split.

NOTE 2 - Summary of Significant Accounting Policies

Changes in Fiscal Year

On March 18, 2018, the Company’s
Board of Directors approved a change in the Company’s fiscal year end from December 31 to March 31. On February 12, 2019,
the Company’s Board of Directors approved a change in the Company’s fiscal year end from March 31 to December 31. Year-over-year
quarterly financial data continue to be comparative to prior periods as the three months that comprise each fiscal quarter in the
new fiscal year are the same as those in the Company’s historical financial statements.

Unaudited Interim Financial
Information

The accompanying consolidated balance
sheet as of June 30, 2019, the consolidated statements of operations and comprehensive loss and cash flows for the three and six
months ended June 30, 2019 and 2018 are unaudited. The unaudited interim consolidated financial statements have been prepared on
the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2019
and 2018 and results of operations and cash flows for the three and six months ended June 30, 2019 and 2018. The financial data
and other information disclosed in these notes to the consolidated financial statements related to these three- and six-month periods
are unaudited. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to
be expected for the year ending December 31, 2019 or for any other interim period or other future year.

Certain prior period balance
sheet and income statement amounts have been reclassified for consistency with the current period presentation. These reclassifications
had no effect on the reported results of operations.

Use of Estimates

The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Actual results may differ from these estimates.

6

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Concentrations of Credit Risk

Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash in banks. As of June 30, 2019 and December
31, 2018, the total balance of cash in bank exceeding the amount insured by Federal Deposit Insurance Corporation (“FDIC”)
for the Company was approximately $5,463,000 and $0. Deposits at financial institutions outside the US were fully insured.

The Company performs ongoing
credit evaluation of its customers and requires no collateral. An allowance for doubtful accounts is provided based on a review
of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining
its historical collection experience and current trends in the credit quality of its customers as well as its internal credit policies.
Actual credit losses may differ from management’s estimates.

Inventories

Inventories are recorded at the
lower of weighted-average cost or net realizable value. The Company assesses the impact of changing technology on its inventory
on hand and writes off inventories that are considered obsolete. Estimated losses on scrap and slow-moving items are recognized
in the allowance for losses.

Property and Equipment

Property and equipment are stated
at cost less accumulated depreciation. When value impairment is determined, the related assets are stated at the lower of fair
value or book value. Significant additions, renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred.

Depreciation is computed by using
the straight-line and double declining methods over the following estimated service lives: ground station equipment – 5 years,
computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment – 5 years, vehicles – 5 years
and lease improvement – 5 years.

Construction costs for on-flight
entertainment equipment not yet in service are recorded under construction in progress.

Upon sale or disposal of property
and equipment, the related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss
credited or charged to income in the period of sale or disposal.

The Company reviews the carrying
amount of property and equipment for impairment when events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. It determined that there was no impairment loss for the three-month and six-month periods ended
June 30, 2019.

Right-of-Use Asset and Lease
Liability

In February 2016, the FASB issued
ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies lease accounting for both lessees
and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases
classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements.

A lessee should recognize the
lease liability to make lease payments and the right-of-use asset representing its right to use the underlying asset for the lease
term. For operating leases, a right-of-use asset and a lease liability are initially measured at the present value of the lease
payments. The amortization of the right-of-use asset is allocated over the lease term generally on a straight-line basis.

For the lease within a term of
twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize
lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally
on a straight-line basis over the lease term. The Company adopted ASU 2016-02 effective January 1, 2019.

Goodwill and Purchased Intangible
Assets

The Company’s goodwill
represents the amount by which the total purchase price paid exceeded the estimated fair value of net assets acquired from acquisition
of subsidiaries. The Company tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate
that there may be impairment.

Purchased intangible assets
with finite life are amortized on the straight-line basis over the estimated useful lives of respective assets. Purchased intangible
assets with indefinite life are evaluated for impairment when events or changes in circumstances indicate that the carrying amount
of such assets may not be recoverable. Purchased intangible asset consists of satellite system software and is amortized over
10 years.

7

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Fair Value of Financial Instruments

The Company utilizes the three-level
valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities
within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels
of the hierarchy consist of the following:

Level 1 - Inputs to the valuation
methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.

Level 2 - Inputs to the valuation
methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active
or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
instrument.

Level 3 - Inputs to the valuation
methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing
the asset or liability at the measurement date, including assumptions.

The carrying amounts of the Company’s
cash, accounts receivable, other receivable, short-term loan and other payable approximated their fair value due to the short-term
nature of these financial instruments. The Company’s long-term loan approximated the carrying amount as its interest
rate is considered as approximate to the current rate for comparable loans. There were no outstanding derivative financial instruments
as of June 30, 2019.

Revenue Recognition

The Company recognizes revenue
when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs upon
the transfer of control in accordance with the contractual terms and conditions of the sale. The Company’s major revenue
for the six-month period ended June 30, 2019 was the sales of compact adaptor for smartphone that allows users to turn their smartphone
into a satellite smartphone to provide reliable connectivity beyond the coverage of traditional networks. The majority of the Company’s
revenue is recognized at a point in time when product is shipped or service is provided to the customer. Revenue is measured as
the amount of consideration the Company expects to receive in exchange for transferring goods, which includes estimates for variable
consideration.

Research and Development Costs

Research and development costs
are charged to operating expenses as incurred. For the six-month periods ended June 30, 2019 and 2018, the Company incurred $416,231
(unaudited) and $237,650 (unaudited) of research and development costs, respectively.

Income Taxes

Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are computed for differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets and liabilities. Adjustments to prior period’s
income tax liabilities are added to or deducted from the current period’s tax provision.

The Company follows FASB guidance
on uncertain tax positions and has analyzed its filing positions in all the federal, state and foreign jurisdictions where it is
required to file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns
in the US federal, state and foreign jurisdictions where it conducts business. The Company believes that its income tax filing
positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse
effect on its consolidated financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions
have been recorded. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

The Company’s policy for
recording interest and penalties associated with any uncertain tax positions is to record such items as a component of income before
taxes. Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the consolidated statement
of operations.

Foreign Currency
Transactions

Foreign currency transactions
are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange gains or losses derived from
foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income.
At the end of each period, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates
with the resulting gains or losses recognized in income for the period.

8

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 2 - Summary of Significant Accounting Policies - Continued

Translation Adjustments

If a foreign subsidiary’s
functional currency is the local currency, translation adjustments will result from the process of translating the subsidiary’s
financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported under other comprehensive
income (loss) as a separate component of stockholders’ equity.

Earnings (Loss) Per Share

Basic earnings (loss) per share
is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average
number of shares of common outstanding during the period increased to include the number of additional shares of common stock that
would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include stock
warrants and outstanding stock options, shares to be purchased by employees under the Company’s employee stock purchase plan.

Subsequent Events

The Company has evaluated events
and transactions after the reported period up to August 9, 2019, the date on which these consolidated financial statements were
available to be issued. All subsequent events requiring recognition as of June 30, 2019 have been included in these consolidated
financial statements.

NOTE 3 - Recent Accounting Pronouncements

Financial Instruments

In June 2016, the FASB issued
ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
(“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13
will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The
Company is currently evaluating the impact of adopting ASU 2016-13 on its consolidated financial statements.

Intangibles

In January 2017, the FASB issued
ASU No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the Test for Goodwill Impairment, which
goodwill shall be tested at least annually for impairment at a level of reporting referred to as a reporting unit. ASU 2017-04
will be effective for annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting
ASU 2017-04 on its consolidated financial statements.

NOTE 4 - Inventories

As of June 30, 2019 and December
31, 2018, inventories consisted of the following:

June 30, 2019

December 31, 2018

(Unaudited)

Satellite equipment for sale under construction

$

1,336,389

$

-

Supplies

5,233

5,273

1,341,622

5,273

Allowance for inventory loss

(5,233

)

(5,273

)

Net

$

1,336,389

$

-

As of June 30, 2019, the Company
transferred construction in progress and Prepayment - Equipment in the amount of $895,014 and $54,625, respectively, to inventories.
As of December 31, 2018, the Company transferred inventories in the amount of $11,029 to R&D expenses.

9

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 5 - Property and Equipment

As of June 30, 2019 and December
31, 2018, the balances of property and equipment were as follows:

June 30, 2019

December 31, 2018

(Unaudited)

Ground station equipment

$

1,854,027

$

1,854,027

Computer software and equipment

322,093

321,070

Satellite equipment

275,410

275,410

Vehicle

141,971

141,971

Leasehold improvement

84,721

84,721

Furniture and fixture

34,618

33,344

2,712,840

2,710,543

Accumulated depreciation

(595,357

)

(322,049

)

Net

2,117,483

2,388,494

Prepayments - land

35,237,127

35,237,127

Prepayment for equipment

-

54,625

Construction in progress

-

1,311,245

Net

$

37,354,610

$

38,991,491

As of June 30, 2019, the balance
of construction in progress was $0 after the Company transferred $416,231 (unaudited) to R&D expenses and $895,014 (unaudited)
to inventories. The Company also transferred $54,625 (unaudited) of prepayment for equipment to inventory.

On May 1, 2018, the Company and
Aerkomm Taiwan entered into a binding memorandum of understanding with Tsai Ming-Yin (the “Seller”) with respect to
the acquisition by Aerkomm Taiwan of a parcel of land located in Taiwan. The land is expected to be used to build a satellite ground
station and data center. On July 10, 2018, the Company, Aerkomm Taiwan and the Seller entered into a certain real estate sales
contract regarding this acquisition. Pursuant to the terms of the contract, and subsequent amendments on July 30, 2018, September
4, 2018, November 2, 2018 and January 3, 2019, the Company paid to the seller in installments refundable prepayment of $33.85 million
as of December 31, 2018. On July 2, 2019, the Company paid the remaining purchase price of $624,462. As of June 30, 2019, the estimated
commission payable for the land purchase in the amount of $1,362,525 (unaudited) was recorded to the cost of land and the payment
to be paid after the full payment of the Land acquisition price until no later than December 31, 2020.

Depreciation expense was $135,622
(unaudited) and $24,945 (unaudited) for the three-month periods ended June 30, 2019 and 2018 and $273,308 (unaudited) and $44,135
(unaudited) for the six-month periods ended June 30, 2019 and 2018, respectively.

NOTE 6 - Intangible Asset, Net

As of June 30, 2019 and December
31, 2018, the cost and accumulated amortization for intangible asset were as follows:

June 30,

2019

December 31, 2018

(Unaudited)

Satellite system software

$

4,950,000

$

4,950,000

Accumulated amortization

(1,815,000

)

(1,567,500

)

Net

$

3,135,000

$

3,382,500

Amortization expense was $123,750
(unaudited) and $123,750 (unaudited) for the three-month periods ended June 30, 2019 and 2018 and $247,500 (unaudited) and $247,500
(unaudited) for the six-month periods ended June 30, 2019 and 2018, respectively.

NOTE 7 - Operating Lease Right-of-Use
Asset

As of June 30, 2019,
the cost and accumulated amortization for operating lease right-of-use asset were as follows:

June 30,

2019

(Unaudited)

Right-of-used asset

$

685,840

Accumulated amortization

(226,117

)

Net

$

459,723

Amortization expense of right-of-use
asset was $118,255 (unaudited) and $243,995 (unaudited) for the three months and six months ended June 30, 2019.

10

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 8 - Long-term Loan

The Company has a car loan credit
line of NT$1,500,000 (approximately US$48,371), which matures on May 21, 2024, from a Taiwan financing company with annual interest
rate of 9.7%. The installment payment plan is 60 months to pay off the balance on the 21st of each month. Future installment
payments as of June 30, 2019 are as follows:

Twelve months ending June 30,

(Unaudited)

2020

$

12,248

2021

12,248

2022

12,248

2023

12,248

2024

11,226

Total installment payments

60,218

Less: Imputed interest

(12,476

)

Present value of long-term loan

47,742

Current portion

7,964

Non-current portion

$

39,778

NOTE 9 - Lease Liability

A.

Lease term and discount rate

The weighted-average remaining
lease term (in years) and discount rate related to the operating leases were as follows:

Six Months Ended June 30, 2019

(Unaudited)

Weighted-average remaining lease term

0.76 year

Weighted-average discount rate

6.00%

As most of our leases do not
provide an implicit rate, we use the prime rate based on the information available at the lease commencement date to determine
the present value of lease payments.

B.

Maturity of lease liabilities

Related Party

Others

Total

(Unaudited)

(Unaudited)

(Unaudited)

7/1/2019-6/30/2020

$

45,953

$

516,465

$

562,418

7/1/2020-6/30/2021

-

81,352

81,352

Total lease payments

45,953

597,817

643,770

Less: Imputed interest

(1,459

)

(17,033

)

(18,492

)

Present value of lease liabilities

44,494

580,784

625,278

Current portion

44,494

500,429

544,923

Non-current portion

$

-

$

80,355

$

80,355

11

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 10 - Income Taxes

Income tax expense for the three-month
and six-month periods ended June 30, 2019 and 2018 consisted of the following:

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Current:

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Federal

$

-

$

-

$

-

$

-

State

-

-

1,600

2,400

Foreign

-

-

1,635

1,662

Total

$

-

$

-

$

3,235

$

4,062

The following table presents
a reconciliation of the Company’s income tax at statutory tax rate and income tax at effective tax rate for the three-month
and six-month periods ended June 30, 2019 and 2018.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Tax benefit at statutory rate

$

(409,180

)

$

(447,328

)

$

(1,014,950

)

$

(742,154

)

Net operating loss carryforwards (NOLs)

418,780

540,592

691,847

712,817

Foreign investment losses

67,200

14,649

183,700

14,649

Stock-based compensation expense

72,800

80,526

138,500

138,445

Amortization expense

(12,800

)

(1,700

)

(25,600

)

(3,400

)

Accrued R&D expense

-

(168,000

)

-

(168,000

)

Accrued payroll

(149,400

)

-

(41,800

)

-

Others

12,600

(18,739

)

71,538

51,705

Tax expense at effective tax rate

$

-

$

-

$

3,235

$

4,062

Deferred tax assets (liability)
as of June 30, 2019 and December 31, 2018 consist approximately of:

June 30, 2019

December 31,

2018

(Unaudited)

Net operating loss carryforwards (NOLs)

$

6,689,000

$

5,632,000

Stock-based compensation expense

1,078,000

893,000

Accrued expenses and unpaid expense payable

249,000

184,000

Tax credit carryforwards

68,000

68,000

Excess of tax amortization over book amortization

(877,000

)

(818,000

)

Others

421,000

131,000

Gross

7,628,000

6,090,000

Valuation allowance

(7,628,000

)

(6,090,000

)

Net

$

-

$

-

Management does not believe the
deferred tax assets will be utilized in the near future; therefore, a full valuation allowance is provided. The net change in deferred
tax assets valuation allowance was an increase of approximately $1,538,000 (unaudited) the six months ended June 30, 2019.

As of December 31, 2017, the
Company had federal NOLs of approximately $6,686,000 available to reduce future federal taxable income, expiring in 2037. As of
June 30, 2019 and December 31, 2018, additional federal NOLs of approximately $15,045,000 (unaudited) and $12,515,000, respectively,
were generated and will be carried forward indefinitely to reduce future federal taxable income. As of June 30, 2019 and December
31, 2018, the Company had State NOLs of approximately $23,886,000 (unaudited) and $21,049,000 respectively, available to reduce
future state taxable income, expiring in 2039.

As of June 30, 2019 and December
31, 2018, the Company has Japan NOLs of approximately $333,000 (unaudited) and $319,000 available to reduce future Japan taxable
income, expiring in 2029.

12

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 10 - Income Taxes - Continued

As of June 30,2019 and December
31, 2018, the Company has Taiwan NOLs of approximately $1,687,000 (unaudited) and $879,000 available to reduce future Taiwan taxable
income, expiring in 2029.

As of June 30, 2019 and December
31, 2018, the Company had approximately $37,000 (unaudited) and $37,000 of federal research and development tax credit, available
to offset future federal income tax. The credit begins to expire in 2034 if not utilized. As of June 30, 2019 and December 31,
2018, the Company had approximately $39,000 (unaudited) and $39,000 of California state research and development tax credit available
to offset future California state income tax. The credit can be carried forward indefinitely.

The Company’s ability to
utilize its federal and state NOLs to offset future income taxes is subject to restrictions resulting from its prior change in
ownership as defined by Internal Revenue Code Section 382. The Company does not expect to incur the limitation on NOLs utilization
in future annual usage.

NOTE 11 - Capital Stock

1)

Preferred Stock:

The Company is authorized to
issue 50,000,000 shares of preferred stock, with par value of $0.001. As of June 30, 2019, there were no preferred stock shares
outstanding. The Board of Directors has the authority to issue preferred stock in one or more series, and in connection with the
creation of any such series, by resolutions providing for the issuance of the shares thereof, to determine dividends, voting rights,
conversion rights, redemption privileges and liquidation preferences.

2)

Common Stock:

The Company is authorized to
issue 90,000,000 shares of common stock, reflecting a reverse split in the ratio of 1 for 5 effective January 16, 2019, with par
value of $0.001.

On February 13, 2017, all of
Aircom’s 5,513,334 restricted shares were converted to 2,055,947 shares of Aerkomm’s restricted stock at the ratio
of 2.681651 to 1, pursuant to the Exchange Agreement (see Note 1). As of June 30, 2019 and December 31, 2018, the restricted shares
consisted of the following:

June 30, 2019

December 31, 2018

(Unaudited)

Restricted stock - vested

1,802,373

1,802,373

Restricted stock - unvested

149,162

149,162

Total restricted stock

1,951,535

1,951,535

The unvested shares of restricted
stock were recorded under a deposit liability account awaiting future conversion to common stock when they become vested. On December
21, 2018, the Company repurchased and cancelled an aggregate of 104,413 unvested
shares of restricted common stock for a purchase price of $0.0067 per share.

On May 14, 2018, the Company
entered into an underwriting agreement (the “Underwriting Agreement”) with Boustead Securities, LLC (“Boustead”)
in connection with the public offering (the “Offering”), issuance and sale of up to 1,411,782 shares of the Company’s
common stock on a best efforts basis, with a minimum requirement of 117,647 shares, at the public offering price of $42.50 per
share (originally $8.5 per share before the 1-to-5 reverse split), less underwriting discounts, for minimum gross proceeds of $5,000,000
and up to a maximum of $60,000,000. As of December 31, 2018, pursuant to the Underwriting Agreement, the Company had issued an
aggregate of 1,024,980 shares of common stock (including 19 shares that were added as a result of rounding in connection with the
one-for-five reverse split concluded on January 16, 2019) for gross proceeds of $43,560,894, or net proceeds of $39,810,204. On
April 23, 2019, the Company filed a post-effective amendment No. 2 with the Securities and Exchange Commission (the “SEC”)
to extend the Offering to attempt to raise the then remaining $16.44 million of the amount that was originally registered in the
Offering, as well as a $9 million over-subscription option amount. On May 17, 2019, the Company filed a post-effective amendment
No. 3 with the Securities and Exchange Commission (the “SEC”) to extend the Offering subsequently and which was declared
effective by the SEC on May 23. 2019. On June 27, 2019, the Company completed one closing in the gross amount of $6,460,000 and
issued 152,000 shares of common stock.

On July 2, 2019, the board of directors approved a supplement to the engagement agreement with one of
the Company’s service providers pursuant to which the Company agreed to issue to the service provider 23,972 restricted shares
of the Company’s common stock in consideration of that service provider’s agreement to defer the receipt of payment
of certain accrued fees due to the service provider.

13

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 11 - Capital Stock - Continued

3)

Stock Warrant:

The Company has entered into
a service agreement which provides for the issuance of warrants to purchase shares of its common stock to a service provider as
payment for services. The warrants allow the service provider to purchase a number of shares of Aerkomm common stock equal to the
service fee value divided by 85% of the share price paid by investors for Aerkomm’s common stock in the first subsequent
qualifying equity financing event, at an exercise price of $0.05 per share. For the six-month periods ended June 30, 2019 and 2018,
Aerkomm has issued additional stock warrants exercisable for $0 and $26,667, respectively, in value of Aerkomm common stock to
the service provider as payment for additional services. As of June 28, 2019, these warrants are equivalent to 4,891 shares of
the Company’s common stock. On June 29, 2019, the Company settled with the service provider to cancel all these warrants
with $75,000 in three installments payable on July 3, August 1, and September 1, 2019.

In connection with the Underwriting
Agreement with Boustead, the Company agreed to issue to Boustead warrants to purchase a number of the Company’s shares equal
to 6% of the gross proceeds of the public offering, which shall be exercisable, in whole or in part, commencing on April 13, 2018
and expiring on the five-year anniversary at an initial exercise price of $53.125 per share, which is equal to 125% of the offering
price paid by investors. As of June 30, 2019, the Company has issued warrants to Boustead to purchase 70,621 shares of the Company’s
stock and the total warrant value is $38,800. For the six-month period ended June 30, 2019, the Company recorded
$159,900 (unaudited) to decrease additional paid-in capital as the adjustment for the issuance costs of these stock warrants.

NOTE 12 - Major Customer

The Company has one major customer,
which represents 10% or more of the total sales of the Company for the period. Sales to and account receivable from the customer
for the six months ended and as of June 30, 2019 were $1,599,864 (unaudited).

NOTE 13 - Major Vendor

The Company has one major vendor,
which represents 10% or more of the total purchases of the Company for the period. Purchases from and account payable to the vendor
for the six months ended and as of June 30, 2019 were $1,587,222 (unaudited).

NOTE 14 - Related Party Transactions

A.

Name of related parties and relationships with the Company:

Related Party

Relationship

Dmedia Holding LP (“Dmedia”)

Major stockholder

Bummy Wu

Shareholder

Jeffrey Wun

Shareholder and CEO of Aerkomm and Aircom

Yih Lieh (Giretsu) Shih

President of Aircom Japan

Chien Ming Tseng

President of Aircom Taiwan

Hao Wei Peng

Employee of Aircom Taiwan and founding owner of Aircom Taiwan prior to 12/19/2017

Louis Giordimaina

COO - Aviation of Aircom

Wealth Wide Int’l Ltd. (“WWI”)

Bummy Wu, a shareholder, is the Chairman

WISD Intellectual Property Agency, Ltd. (“WISD”)

Patrick Li, Director of Aircom, is the Chairman; Chih-Ming (Albert) Hsu, Director of the Company, is a Director

14

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 - Related Party
Transactions - Continued

B.

Significant related party transactions:

The Company has extensive transactions
with its related parties. It is possible that the terms of these transactions are not the same as those which would result from
transactions among wholly unrelated parties.

a.

As of June 30, 2019 and December 31, 2018:

June 30, 2019

December 31, 2018

(Unaudited)

Temporary deposit to Bummy Wu1

$

-

$

100,067

Loan from Dmedia2

$

194,600

$

-

Operating lease liability to WWI3

$

44,494

$

-

Other payable to:

Yih Lieh (Giretsu) Shih4

$

204,006

$

15,497

Jeffrey Wun4

74,044

46,236

Chien Ming Tseng4

66,108

-

Hao Wei Peng4

47,262

-

Louis Giordimaina4

40,803

6,071

WWI3

39,318

39,224

Others4

59,666

66,826

Total

$

531,207

$

173,854

1.

In November 2018, Aircom HK’s bank account was temporarily frozen by its local bank in Hong Kong (the “HK bank”) due to Aircom HK’s failure to timely submit to the HK bank corporate documentation relating to the corporate organization and goodstanding of Aircom HK’s parent company, Aircom, and Aircom’s parent company, Aerkomm. To avoid a potential cash flow issue resulting from this temporary account freeze, Aircom HK withdrew $100,067 in cash from the HK bank and temporarily deposited it in an existing related party’s bank account at a different bank for safe keeping. The Aircom HK’s bank account with the HK bank was reactivated by the HK bank subsequently and the cash that was transferred to the related party’s account was redeposited into Aircom HK’s bank account at the HK bank in February 2019.

2.

Represents short-term loan from Dmedia. This short-term loan has an expiration date of January
30, 2020 and an annual interest rate of 3%. The Company repaid the loan in full on July 1. 2019.

3.

Represents rent for a warehouse in Hong Kong to store the Company’s hardware, which ended in May 2018,
and rent for another Hong Kong office starting June 28, 2018.

4.

Represents payable to employees as a result of regular operating activities.

15

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 14 - Related Party Transactions
- Continued

b.

For the three-month and six-month periods ended June 30, 2019 and 2018:

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Consulting expense paid to Louis Giordimaina

$

-

$

87,275

$

-

$

222,246

Legal expense paid to WISD

-

1,392

-

1,392

Amortization expense of right-of-use asset charged by WWI

11,440

-

22,872

-

Rental expense charged by WWI

-

1,334

-

2,684

Interest expense charged by Dmedia

1,446

1,915

1,744

3,116

On May 25, 2018, Mr. Louis Giordimaina
was converted from a consultant to a full-time employee and was appointed as Chief Operating Officer – Aviation. The consulting
expense paid for the six-month period ended June 30, 2018 in the amount of $222,246 represents the consulting services provided
prior to the conversion.

Aircom engaged WISD to handle
its filing of patent and trademark applications.

The Company had a lease agreement
with WWI with a monthly rental cost of $450 that expired on May 31, 2018 and was not renewed. The Company has another lease agreement
with WWI for its office space in Hong Kong with a monthly rental cost of HKD 30,000. The lease term is from June 28, 2018 to June
27, 2020. Effective January 1, 2019, the Company adopted ASU2016-02, “Leases” (Topic 842) (“ASU 2016-02”),
and accounted for these leases under amortization of the lease payment under Note 9, Lease Liabilities.

NOTE 15 - Stock Based Compensation

In March 2014, Aircom’s
Board of Directors adopted the 2014 Stock Option Plan (the “Aircom 2014 Plan”). The Aircom 2014 Plan provided for the
granting of incentive stock options and non-statutory stock options to employees, consultants and outside directors of Aircom.
On February 13, 2017, pursuant to the Exchange Agreement, Aerkomm assumed the options of Aircom 2014 Plan and agreed to grant options
to purchase an aggregate of 1,088,882 shares of the Company’s common stock to Aircom’s stock option holders.

One-third of stock option shares
vested on the first anniversary of the grant date or the employee’s acceptance to serve the Company, and the remainder of
the grant vested and will vest in 36 equal monthly installments thereafter, subject to the grantee’s continuous service through
the applicable vesting date. Option prices for such options were determined by Aircom’s Board of Directors. The Aircom 2014
Plan became effective upon its adoption by the Board and shall continue in effect for a term of 10 years unless sooner terminated
under the terms of Aircom 2014 Plan.

On May 5, 2017, the Board of
Directors of Aerkomm adopted the Aerkomm Inc. 2017 Equity Incentive Plan (the “Aerkomm 2017 Plan” and together with
the Aircom 2015 Plan, the “Plans”) and the reservation of 1,000,000 shares of the Company’s common stock for
future grant or issuance under the Aerkomm 2017 Plan. On June 23, 2017, the Board of Directors voted to increase the number of
shares of common stock reserved for future grant or issuance under the Aerkomm 2017 Plan to 2,000,000 shares. The Aerkomm 2017
Plan provides for the granting of incentive stock options and non-statutory stock options to employees, consultants and outside
directors of the Company, as determined by the Compensation Committee of the Board of Directors (or, prior to the establishment
of the Compensation Committee on January 23, 2018, the Board of Directors).

On June 23, 2017, the Board of
Directors approved the grant of options to purchase an aggregate of 291,000 shares under the Aerkomm 2017 Plan to certain officers
and directors of the Company. The option agreements are classified into three types of vesting schedules, which include, 1) 1/6
of the shares subject to the option shall vest commencing on the vesting start date and the remaining shares shall vest at the
rate of 1/60 for the next 60 months on the same day of the month as the vesting start date; 2) 1/4 of the shares subject to the
option shall vest commencing on the vesting start date and the remaining shares shall vest at the rate of 1/36 for the next 36
months on the same day of the month as the vesting start date; 3) 1/3 of the shares subject to the option shall vest commencing
on the first anniversary of vesting start date and the remaining shares shall vest at the rate of 50% each year for the next two
years on the same day of the month as the vesting start date.

On July 31, 2017, the Board of
Directors approved the grant of options to purchase an aggregate of 109,000 shares under the Aerkomm 2017 Plan to 11 of its employees.
One-third of these shares subject to the options vested on the first anniversary of the grant date, one-third of the shares vested
on the second anniversary of the grant date, and the remaining shares shall vest on the third anniversary of the grant date.

16

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 15 - Stock Based Compensation -
Continued

On December 29, 2017, the Board
of Directors approved the grant of options to purchase 4,000 shares under the Aerkomm 2017 Plan to each of three of the Company’s
independent directors for an aggregate of 12,000 shares. All of these options vested immediately upon grant.

On June 19, 2018, the Compensation
Committee approved the grant of options to purchase 32,000 and 30,000 shares under the Aerkomm 2017 Plan to two of the Company
executives. One-fourth of the 32,000 shares subject to the option vested on May 1, 2019, and the remaining shares shall vest in
three equal yearly installments thereafter. One-third of the 30,000 shares subject to the option vested on May 29, 2019, and the
remaining shares shall vest in two equal yearly installments thereafter.

On September 16, 2018 and December
29, 2018, the Compensation Committee approved the grant of options to purchase 4,000 shares under the Aerkomm 2017 Plan to each
of four of the Company’s independent directors for an aggregate of 16,000 shares. All of these options vested immediately
upon grant.

On July 2, 2019, the Board of
Directors approved the grant of options to purchase an aggregate of 339,000 shares under the Aerkomm 2017 Plan to 22 of its directors,
officers and employees. 25% of the shares vested on the grant date, 25% of the shares vested on July 17, 2019, 25% of the shares
will vest on the first anniversary of the grant date, and 25% of the shares will vest upon the second anniversary of the grant
date.

Option price is determined by
the Compensation Committee. The Aerkomm 2017 Plan has been adopted by the Board and shall continue in effect for a term of 10 years
unless sooner terminated under the terms of Aerkomm 2017 Plan. The Aerkomm 2017 Plan was approved by the Company’s stockholders
on March 28, 2018.

Valuation and Expense Information

Measurement and recognition of
compensation expense based on estimated fair values is required for all share-based payment awards made to its employees and directors
including employee stock options. The Company recognized compensation expense of $659,591 and $659,264 for the six-month periods
ended June 30, 2019 and 2018, respectively, related to such employee stock options.

Determining Fair Value

Valuation and amortization
method

The Company uses the Black-Scholes
option-pricing-model to estimate the fair value of stock options granted on the date of grant or modification and amortizes the
fair value of stock-based compensation at the date of grant on a straight-line basis for recognizing stock compensation expense
over the vesting period of the option.

Expected term

The expected term is the period
of time that granted options are expected to be outstanding. The Company uses the SEC’s simplified method for determining
the option expected term based on the Company’s historical data to estimate employee termination and options exercised.

Expected dividends

The Company does not plan to
pay cash dividends before the options are expired. Therefore, the expected dividend yield used in the Black-Scholes option valuation
model is zero.

Expected volatility

Since the Company has no historical
volatility, it used the calculated value method which substitutes the historical volatility of a public company in the same industry
to estimate the expected volatility of the Company’s share price to measure the fair value of options granted under the Plans.

Risk-free interest rate

The Company based the risk-free
interest rate used in the Black-Scholes option valuation model on the market yield in effect at the time of option grant provided
in the Federal Reserve Board’s Statistical Releases and historical publications on the Treasury constant maturities rates
for the equivalent remaining terms for the Plans.

Forfeitures

The Company is required to estimate
forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates.
The Company uses historical data to estimate option forfeitures and records share-based compensation expense only for those awards
that are expected to vest.

17

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 15 - Stock Based Compensation -
Continued

The Company used the following
assumptions to estimate the fair value of options granted in 2018 under the Plans as follows:

Assumptions

Expected term

10 years

Expected volatility

59.83% - 61.78

%

Expected dividends

0

%

Risk-free interest rate

2.72% - 2.99

%

Forfeiture rate

0% - 5

%

Aircom 2014 Plan

A summary of the number of shares,
weighted average exercise price and estimated fair value of options for Aircom 2014 Plan as of December 31, 2018 and June 30, 2019
is as follows:

Number of Shares

Weighted Average Exercise Price Per Share

Weighted Average Fair Value Per Share

Options outstanding at January 1, 2018

932,262

$

0.4081

$

0.1282

Granted

-

-

-

Exercised

-

-

-

Forfeited/Cancelled

-

-

-

Options outstanding at December 31, 2018

932,262

0.4081

0.1282

Granted

-

-

-

Exercised

-

-

-

Forfeited/Cancelled

-

-

-

Options outstanding at June 30, 2019

932,262

0.4081

0.1282

Options exercisable at December 31, 2018

846,287

0.2892

0.0908

Options exercisable at June 30, 2019

932,262

0.4081

0.1282

A summary of the status of nonvested
shares under Aircom 2014 Plan as of December 31, 2018 and June 30, 2019 is as follows:

Number of Shares

Weighted Average Exercise Price Per Share

Options nonvested at January 1, 2018

302,467

$

0.8315

Granted

-

-

Vested

(216,492

)

0.5349

Forfeited/Cancelled

-

-

Options nonvested at December 31, 2018

85,975

1.5786

Granted

-

-

Vested

(85,975

)

1.3700

Forfeited/Cancelled

-

-

Options nonvested at June 30, 2019

-

-

18

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 15 - Stock Based Compensation -
Continued

Aerkomm 2017 Plan

A summary of the number of shares,
weighted average exercise price and estimated fair value of options under Aerkomm 2017 Plan as of December 31, 2018 and June 30,
2019 is as follows:

Number of Shares

Weighted Average Exercise Price Per Share

Weighted Average Fair Value Per Share

Options outstanding at January 1, 2018

253,000

$

30.8824

$

18.4796

Granted

78,000

19.7462

9.2500

Exercised

-

-

-

Forfeited/Cancelled

(48,000

)

27.5000

16.4610

Options outstanding at December 31, 2018

283,000

28.3867

16.2781

Granted

-

-

-

Exercised

-

-

-

Forfeited/Cancelled

-

-

-

Options outstanding at June 30, 2019 (unaudited)

283,000

28.3867

16.2781

Options exercisable at December 31, 2018

111,589

28.7052

16.5968

Options exercisable at June 30, 2019 (unaudited)

143,839

27.5782

15.6913

A summary of the status of nonvested
shares under Aerkomm 2017 Plan as of June 30, 2019 and December 31, 2018 is as follows:

Number of Shares

Weighted Average Exercise Price Per Share

Options nonvested at January 1, 2018

168,250

$

32.4079

Granted

78,000

19.7462

Vested

(74,839

)

28.8962

Forfeited/Cancelled

-

-

Options nonvested at December 31, 2018

171,411

28.1794

Granted

-

-

Vested

(32,250

)

23.6783

Forfeited/Cancelled

-

-

Options nonvested at June 30, 2019 (unaudited)

139,161

29.2225

As of June 30, 2019 and December
31, 2018, there were approximately $1,542,000 (unaudited) and $2,174,000, respectively, of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the Plans. Total unrecognized compensation cost will be
adjusted for future changes in estimated forfeitures. The Company expects to recognize that cost over a weighted average period
of 1 - 5 years.

19

AERKOMM INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE 16 - Commitments

As of June 30, 2019, the Company’s
significant commitment is summarized as follows:

Yihe Culture
Media Agreement: On June 20, 2018, the Company entered into a Cooperation Framework Agreement with Shenzhen Yihe Culture
Media Co., Ltd. (“Yihe”), the authorized agent of Guangdong Tengnan Internet, pursuant to which Yihe will promote
the development of strategic cooperation between the Company and Guangdong Tengnan Internet. Specifically, Yihe agreed to
assist the Company with public relations and advertising, such as market and brand promotion, as well as brand recognition
in China (excluding Hong Kong, Macao and Taiwan), including but not limited to news dissemination, creative planning and support
of campaigns, financial public relations and internet advertising. More specifically, Yihe will help the Company develop a
working application of the WeChat Pay payment solution as well as WeChat applets applicable for Chinese users and relating
to cell phone and WiFi connectivity on airplanes, and Yihe will assist the Company in integrating other Tencent internet-based
original product offerings. As compensation, the Company agreed to pay Yihe RMB 8 million (approximately US$1.2 million),
RMB 2,000,000 (approximately US$309,000) of which the Company paid on June 29, 2018 and the remaining RMB 6,000,000 (approximately
US$927,000) of which was to be paid by August 15, 2018. On July 19, 2019, Yihe and the Company agreed to extend the expiration
date of the agreement to June 20, 2022 and to extend the date by which the Company must pay the remaining RMB 6,000,000 on August
12, 2019.

Airbus SAS Agreement:On
November 30, 2018, in furtherance of a memorandum of understanding signed in March 2018, the Company entered into an agreement
with Airbus SAS (“Airbus”), pursuant to which Airbus will develop and certify a complete solution allowing the
installation of our “AERKOMM K++” system on Airbus’ single aisle aircraft family including the Airbus A319/320/321,
for both Current Engine Option (CEO) and New Engine Option (NEO) models. Airbus will also apply for and obtain on our behalf
a Supplemental Type Certificate (STC) from the European Aviation Safety Agency, or EASA, as well as from the U.S. Federal
Aviation Administration or FAA, for the retrofit system. It is anticipated that the Bilateral Aviation Safety Agreement between
EASA and the Civil Aviation Administration of China, or CAAC, will be finalized and go into effect in 2019. Pursuant to the
terms of our Airbus agreement, The Company agreed to pay the service fees that Airbus provides the Company with the retrofit
solution which will include the Service Bulletin and the material kits including the update of technical and operating manuals
pertaining to the aircraft and provision of aircraft configuration control. The timeframe for the completion and testing of
this retrofit solution, including the certification, is approximately 16 months from the purchase order issued in August 2018,
although there is no guarantee that the project will be successfully completed in the projected timeframe.

20

ITEM
2.

MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Use
of Terms

Except
as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,”
“us,” “our,” or “our company” are to the combined business of Aerkomm Inc., a Nevada corporation,
and its consolidated subsidiaries, including Aircom Pacific, Inc., a California corporation and wholly-owned subsidiary, or Aircom
Aerkomm Taiwan Inc., a Taiwanese company and wholly-owned subsidiary, or Aerkomm Taiwan; Aircom Pacific Ltd., a Republic of Seychelles
company and wholly-owned subsidiary of Aircom; Aircom Pacific Inc. Limited, a Hong Kong company and wholly-owned subsidiary of
Aircom; Aircom Japan, Inc., a Japanese company and wholly-owned subsidiary of Aircom; and Aircom Telecom LLC, a Taiwanese company
and wholly-owned subsidiary of Aircom, Aircom Taiwan, or Aircom Beijing.

Special
Note Regarding Forward Looking Statements

Certain
information contained in this report includes forward-looking statements. The statements herein which are not historical reflect
our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and
opportunities and are based upon information currently available to us and our interpretation of what is believed to be significant
factors affecting the businesses, including many assumptions regarding future events. The following factors, among others, may
affect our forward-looking statements:

the
effects of increased competition in our market and our ability to compete effectively;

●

our
expectations concerning relationship with customers and other third parties;

●

the
attraction and retention of qualified employees and key personnel;

●

future
acquisitions of our investments in complementary companies or technologies; and

●

our
ability to comply with evolving legal standards and regulations.

Forward-looking
statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable
by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend,” or “project” or the negative of these words or other variations on these
words or comparable terminology. Actual results, performance, liquidity, financial condition, prospects and opportunities could
differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties
and other factors, including the ability to raise sufficient capital to continue our operations. Actual events or results may
differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation,
the risks outlined under “Risk Factors” included in our Transition Report on Form 10-KT for the transition period
from March 1, 2018 through December 31, 2018, and matters described in this report generally. In light of these risks and uncertainties,
there can be no assurance that the forward-looking statements contained in this report will in fact occur.

Potential
investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities
laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information,
future events, changed circumstances or any other reason.

21

The
specific discussions herein about our company include financial projections and future estimates and expectations about our business.
The projections, estimates and expectations are presented in this report only as a guide about future possibilities and do not
represent actual amounts or assured events. All the projections and estimates are based exclusively on our management’s
own assessment of our business, the industry in which we work and the economy at large and other operational factors, including
capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ
significantly from the projections.

Potential
investors should not make an investment decision based solely on our company’s projections, estimates or expectations.

Recent
Developments

On
June 27, 2019, we held an additional closing of our ongoing “best efforts” public offering (the “Offering”)
in which we issued and sold 152,000 shares of our common stock for gross proceeds of $6,460,000, before underwriting commissions
and offering expenses. We may hold additional closings of the Offering from time to time until the end of the offering period
on November 23, 2019. With respect to this closing and the continuation of the Offering, we also entered into an amendment to
the underwriting agreement (the “Amendment”) with Boustead Securities, LLC. A copy of the Amendment to the
Underwriting Agreement is referenced in the description of exhibits herein as Exhibit 10.1.

On
July 3, 2019, we paid Tsai Ming-Yin (the “Seller”) a final installment in the amount of US$624,462 of the purchase
price for the acquisition by our wholly owned subsidiary, Aerkomm Taiwan, of a 6.36 acre parcel of land (the “Parcel”)
located at the Taishui Grottoes in the Xinyi District of Keelung City, Taiwan, which is expected to be used by Aerkomm Taiwan
and us to build Aerkomm’s first satellite ground station and data center. On July 16, 2019, the Seller provided us with
a letter of undertaking (i) not to exercise his right to cancel and terminate our definitive agreement to purchase the parcel
and (ii) to proceed with the transfer of ownership of the Parcel to Aerkomm Taiwan. A copy of this letter of undertaking is referenced
in the description of exhibits herein as Exhibit 10.2.

On
July 17, 2019, the French Autorité des Marchés Financiers (the “AMF”) granted visa number
19-372 on the prospectus relating to the admission of our common stock to list and trade on the Professional Segment of the regulated
market of Euronext Paris (“Euronext Paris”). Our common stock began trading on Euronext Paris on July 23, 2019
under the symbol “AKOM” and is denominated in Euros on Euronext Paris. This listing did not alter our outstanding
share count, capital structure, or current common stock listing on the OTCQX, where our common stock also trades (in US dollars)
under the symbol “AKOM.”

Overview

With
advanced technologies and a unique business model, we, as a development stage service provider of IFEC solutions, intend to provide
airline passengers with a broadband in-flight experience that encompasses a wide range of service options. Such options include
Wi-Fi, cellular, movies, gaming, live TV, and music. We plan to offer these core services, which we are currently still developing,
through both built-in in-flight entertainment systems, such as a seat-back display, as well as on passengers’ own personal
devices. We also expect to provide content management services and e-commerce solutions related to our IFEC solutions.

We
plan to partner with airlines and offer airline passengers free IFEC services. We expect to generate revenue through advertising
and in-flight transactions. We believe that this is an innovative approach that differentiates us from existing market players.

To
complement and facilitate our planned IFEC service offerings, we intend to build satellite ground stations and related data centers
within the geographic regions where we expect to be providing IFEC airline services.

Additionally,
we have developed and begun to market two internet connectivity systems, one for hotels primarily located in remote regions and
the other for maritime use. Both systems will operate through a Ku/Ku high throughput satellite, or HTS. We also expect develop
a remote connectivity system that will be applicable to the highspeed rail industry.

MJet
GMBH General Terms Agreement

On March 6, 2019, we signed a General Terms
Agreement (GTA) with MJet GMBH, or MJet, an Airbus Corporate Jets (“ACJ”) customer and an ACJ A319 corporate jet owner
and operator based in Vienna, Austria. The GTA provided for the provision, installation, testing and certification of our Aerkomm
K++ system equipment, including the Airbus Service Bulletin and associated material kit and related connectivity services, on an
MJet ACJ A319 aircraft under the supervision of Airbus. On June 11, 2019 the GTA was converted into a definitive agreement with
MJet (the “MJet Definitive Agreement”), and on June 12, 2019 MJet placed a Purchase Order with Aircom. MJet
will be our launch customer for the first planned installation of our AERKOMM K++ system equipment by the end of 2019 or first
quarter of 2020. Assuming the installation, testing and certification of our AERKOMM K++ system on the MJet A319 is successful,
something we cannot guarantee at this time, MJet will pay us a one-time fee for our equipment and a monthly fee for our connectivity
services, at which point we would also begin charging MJet for the bandwidth required to use the AERKOMM K++ system services. Assuming
the success of this installation, MJet would become the first recurring payment customer of our IFEC AERKOMM K++ system as well
as being the launch customer of our Aerkomm K++ solution. A copy of the MJet Definitive Agreement is attached hereto as Exhibit
10.3. A copy of the MJet Definitive Agreement is attached hereto as exhibit 10.3.

On June 20, 2018, the Company entered into
a Cooperation Framework Agreement with Yihe, the authorized agent of Guangdong Tengnan Internet, pursuant to which Yihe will promote
the development of strategic cooperation between the Company and Guangdong Tengnan Internet. Specifically, Yihe agreed to assist
the Company with public relations and advertising, such as market and brand promotion, as well as brand recognition in China (excluding
Hong Kong, Macao and Taiwan), including but not limited to news dissemination, creative planning and support of campaigns, financial
public relations and internet advertising. More specifically, Yihe will help the Company develop a working application of the WeChat
Pay payment solution as well as WeChat applets applicable for Chinese users and relating to cell phone and WiFi connectivity on
airplanes, and Yihe will assist the Company in integrating other Tencent internet-based original product offerings. As compensation,
the Company agreed to pay Yihe RMB 8 million (approximately US$1.2 million), RMB 2,000,000 (approximately US$309,000) of which
the Company paid on June 29, 2018 and the remaining RMB 6,000,000 (approximately US$927,000) of which was to be paid by August
15, 2018. On July 19, 2019, Yihe and the Company agreed to extend the agreement to expire June 20, 2022 and to extend the date
by which the Company must pay the remaining RMB 6,000,000 to August 12, 2019.

Business
Development

We
are actively working with prospective airline customers to provide services to their passengers utilizing the Airbus to-be certified
AERKOMM K++ system. We have entered into non-binding memoranda of understanding with a number of airlines, including Air Malta
Airlines of Malta, PanAfriqiyah of Malta, and Onur Air of Turkey. There can be no assurances, however, that these will lead to
actual purchase agreements.

In
view of the increasing demand by the airlines for a bigger data throughput, during the course of discussions between us and Airbus,
we have revised our strategy to focus primarily on Ka-band IFEC solutions for airlines and have suspended work on our dual band
satellite inflight connectivity solution. The Ku-band system will, however, still be retained for other product applications such
as remote locations and maritime use.

In
connection with the Airbus project, we also identified owners of ACJ aircraft, as potential customers of our AERKOMM K++ system.
ACJ customers, however, would not generate enough internet traffic to make our free-service business model viable. To capitalize
on this additional market, we plan to sell our AERKOMM K++ system hardware for installation on ACJ corporate jets and provide
connectivity through subscription based plans. This new corporate jet market would generate additional revenue and income for
our company. We are currently in advanced discussions with a number of ACJ customers, some of whom have more than one aircraft
in their fleets.

Our
AERKOMM K++ System

Following
the course of discussions between us and Airbus and in view of the increasing demand by the airlines for a bigger data throughput,
we have revised our strategy to focus primarily on Ka-band satellite connectivity solutions for aviation customers and have suspended
work on our dual band satellite connectivity solution. Our AERKOMM K++ system will operate through Ka/Ka High Throughput Satellites.
The Ku-band system will, however, still be retained for the other applications such as remote locations and maritime use.

Our
AERKOMM K++ system will contain a low profile radome (that is, a dome or similar structure protecting our radio equipment) containing
two Ka-band antennas, one for transmitting and the other for receiving, and will comply with the ARINC 791 standard of Aeronautical
Radio, Incorporated. Our AERKOMM K++ system also meets Airbus Design Organization Approval.

Our
initial AERKOMM K++ system will work only with geostationary earth orbiting, or GEO, Ka-band satellites. Performance of GEO satellites
diminishes greatly in the areas near the Earth’s poles. Only low earth orbiting, or LEO, satellites can collect high quality
data over the North and South poles. We are developing technologies to work with LEO satellites and plans to partner with Airbus
to develop aircraft installation solutions. As new GEO and LEO Ka-band satellites are regularly launched over the next few years,
which, we expect, will enable the provision of worldwide aircraft coverage, we plan to have the necessary technology ready to
take advantage of this new trend in Ka-band aviation connectivity, although we cannot assure you that we will be successful in
this new area of endeavor.

Ground-based
Satellite System Sales

Since
our acquisition of Aircom Taiwan in December 2017, this wholly owned subsidiary has been developing ground-based satellite connectivity
components which have an application in remote regions that lack regular affordable ground-based communications. In September,
2018, Aircom Taiwan consummated its first sale of such a component, a small cell server terminal, in the amount of $1,730,000. This
server terminal will be utilized by the purchaser in the construction of a satellite-based ground communication system which will
act as a multicast service extension of existing networks. The system is designed to extend local existing networks, such as ISPs
and mobile operators, into rural areas and create better coverage and affordable connectivity in these areas. Aircom Taiwan expects
to sell additional satellite connectivity components, systems and services to be used in ground mobile units in the future, although
there can be no assurances that it will be successful in these endeavors.

In
addition, in September 2018, Aircom Taiwan provided installation and testing services of a satellite-based ground connectivity
system to a remote island resort and received service income related to this project in the amount of $15,000. Upon the completion
of this system’s testing phase, and assuming that the system operates satisfactorily, Aircom Taiwan expects to begin to
sell this system to multiple, remotely located resorts. We can make no assurances at this time however, that this system will
operate satisfactorily, that we will be successful in introducing this system as a viable product offering or that we will be
able to generate any additional revenue from the sale and deployment of this system.

23

Principal
Factors Affecting Financial Performance

We
believe that our operating and business performance is driven by various factors that affect the commercial airline industry,
including trends affecting the travel industry and trends affecting the customer bases that we target, as well as factors that
affect wireless Internet service providers and general macroeconomic factors. Key factors that may affect our future performance
include:

●

our
ability to enter into and maintain long-term business arrangements with airline partners, which depends on numerous factors
including the real or perceived availability, quality and price of our services and product offerings as compared to those
offered by our competitors;

●

the
extent of the adoption of our products and services by airline partners and customers;

●

costs
associated with implementing, and our ability to implement on a timely basis, our technology, upgrades and installation technologies;

●

costs
associated with and our ability to execute our expansion, including modification to our network to accommodate satellite technology,
development and implementation of new satellite-based technologies, the availability of satellite capacity, costs of satellite
capacity to which we may have to commit well in advance, and compliance with regulations;

●

costs
associated with managing a rapidly growing company;

●

the
number of aircraft in service in our markets, including consolidation of the airline industry or changes in fleet size by
one or more of our commercial airline partners;

●

the
economic environment and other trends that affect both business and leisure travel;

●

continued
demand for connectivity and proliferation of Wi-Fi enabled devices, including smartphones, tablets and laptops;

●

our
ability to obtain required telecommunications, aviation and other licenses and approvals necessary for our operations; and

●

changes
in laws, regulations and interpretations affecting telecommunications services and aviation, including, in particular, changes
that impact the design of our equipment and our ability to obtain required certifications for our equipment.

Emerging
Growth Company

We
qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As
a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an
emerging growth company, we will not be required to:

●

have
an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

●

comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation
or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(i.e., an auditor discussion and analysis);

●

submit
certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;”
and

●

disclose
certain executive compensation related items such as the correlation between executive compensation and performance and comparisons
of the CEO’s compensation to median employee compensation.

In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new
or revised accounting standards.

In
other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We
will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first
fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the
market value of our shares of common stock that are held by non-affiliates exceeds $700 million as of the last business day of
our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.

24

Results
of Operations

Comparison
of Three Months Ended June 30, 2019 and 2018

The
following table sets forth key components of our results of operations during the three-month periods ended June 30, 2019 and
2018.

Three Months Ended

June 30,

Change

2019

2018

$

%

Sales

$

1,599,864

$

-

$

1,599,864

100.0

%

Cost of sales

1,587,222

-

1,587,222

100.0

%

Operating expenses

1,574,522

2,135,585

(561,063

)

(26.3

)%

Loss from operations

(1.561.880

)

(2,135,585

)

(573,705

)

(26.9

)%

Net non-operating income (expense)

(123,556

)

5,454

(129,010

)

(2,365.4

)%

Loss before income taxes

(1,685,436

)

(2,130,131

)

444,695

(20.9

)%

Net Loss

(1,685,436

)

(2,130,131

)

444,695

(20.9

)%

Other comprehensive income (loss)

121,698

(6,616

)

128,314

(1,939.4

)%

Total comprehensive loss

$

(1,563,738

)

$

(2,136,747

)

$

573,009

(26.8

)%

Revenue.Our total
revenue was $1,599,864 and $0 for the three-month periods ended June 30, 2019 and 2018. Our total revenue of $1,599,864 for the
three-month period ended June 30, 2019 was a non-recurring sales of compact adaptor for smartphone that allows users to turn their
smartphone into a satellite smartphone to provide reliable connectivity beyond the coverage of traditional networks as we are
still developing our core business in in-flight entertainment and connectivity.

Cost of sales. Our cost of sales
was $1,587,222 and $0 for the three-month periods ended June 30, 2019 and 2018. The cost of sales of $1,587,222 for the three-month
period ended June 30, 2019 was the cost of non-recurring sales of satellite-based mobile communication units.

Operating
expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and
development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred
in connection with general operations. Our operating expenses decreased by $561,063 to $1,574,522 for the three-month period
ended June 30, 2019, from $2,135,585 for the three-month period ended June 30, 2018. Such decrease was mainly due to the decrease
in consulting fee, investor relation and public listing related expense and research and development expense of $704,843, $237,858
and $146,900, respectively, which was offset by the increase in depreciation expense and payroll related expense of $110,678 and
$146,896, respectively. The decrease in consulting fee was mainly related to the decrease in fair value of warrants issued to
our underwriter for the public offering and termination of one consulting agreement.

Net non-operating expense.
We had $123,556 in net non-operating expense for the three-month period ended June 30, 2019, as compared to net non-operating income
of $5,454 for the three-month period ended June 30, 2018. Net non-operating expense in the three-month period ended June 30, 2019
mainly due to the loss on foreign exchange translation of $120,504 and interest expense of $3,062, while net non-operating income
in the three-month period ended June 30, 2018 includes a foreign exchange translation gain of $7,444 and net interest expense of
$1,990.

Loss
before income taxes. Our loss before income taxes decreased by $444,695 to $1,685,436 for the three-month period
ended June 30, 2019, from a loss of $2,130,131 for the three-month period ended June 30, 2018, as a result of the factors described
above.

Income
tax expense.Income tax expense was $0 and $0 for the three-month period ended June 30, 2019 and 2018,
respectively.

Total
comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive
loss decreased by $573,009 to $1,563,738 for the three-month period ended June 30, 2019, from $2,136,747 for the three-month period
ended June 30, 2018.

Comparison
of Six Months Ended June 30, 2019 and 2018

The
following table sets forth key components of our results of operations during the six-month periods ended June 30, 2019 and 2018.

Six Months Ended

June 30,

Change

2019

2018

$

%

Sales

$

1,599,864

$

-

$

1,599,864

100.0

%

Cost of sales

1,587,222

-

1,587,222

100.0

%

Operating expenses

3,622,811

3,856,484

36,327

1.0

%

Loss from operations

(3,610,169

)

(3,586,484

)

(23,685

)

0.7

%

Net non-operating income (expense)

(455,026

)

1,232

(456,258

)

(37,033.9

)%

Loss before income taxes

(4,065,195

)

(3,585,252

)

(479,943

)

13.4

%

Income tax expense

3,235

4,062

(827

)

(20.4

)%

Net Loss

(4,068,430

)

(3,589,314

)

(479,116

)

13.3

%

Other comprehensive income (loss)

465,294

(3,682

)

468,976

(12,737.0

)%

Total comprehensive loss

$

(3,603,136

)

$

(3,592,996

)

$

(10,140

)

0.3

%

25

Revenue.Our total
revenue was $1,599,864 and $0 for the six-month periods ended June 30, 2019 and 2018. Our total revenue of $1,599,864 for the
six-month period ended June 30, 2019 was a non-recurring sales of compact adaptor for smartphone that allows users to turn their
smartphone into a satellite smartphone to provide reliable connectivity beyond the coverage of traditional networks as we are
still developing our core business in in-flight entertainment and connectivity.

Cost of sales. Our cost of
sales was $1,587,222 and $0 for the six-month periods ended June 30, 2019 and 2018. The cost of sales of $1,587,222 for the six-month
period ended June 30, 2019 was the cost of non-recurring sales of satellite-based mobile communication units.

Operating
expenses. Our operating expenses consist primarily of compensation and benefits, professional advisor fees, research and
development expenses, cost of promotion, business development, business travel, transportation costs, and other expenses incurred
in connection with general operations. Our operating expenses increased by $36,326 to $3,622,811 for the six-month period
ended June 30, 2019, from $3,586,484 for the six-month period ended June 30, 2018. Such increase was mainly due to the increase
in payroll and related expense, depreciation expense, accounting fee, research and development expense and amortization expense
of $290,183, $229,209, $179,946, $178,580 and $123,894, respectively, which was offset by the decrease in consulting fee and investor
relation and public listing related expense of $924,453 and $255,414, respectively. The decrease in consulting fee was mainly
related to the decrease in fair value of warrants issued to our underwriter for the public offering and termination of one consulting
agreement.

Net non-operating expense.
We had $455,026 in net non-operating expense for the six-month period ended June 30, 2019, as compared to net non-operating income
of $1,232 for the six-month period ended June 30, 2018. Net non-operating expense in the six-month period ended June 30, 2019 mainly
due to the loss on foreign exchange translation of $451,701 and interest expense of $3,341, while net non-operating income in the
six-month period ended June 30, 2018 includes a foreign exchange translation gain of $4,422 and net interest expense of $3,191.

Loss
before income taxes. Our loss before income taxes increased by $479,943 to $4,065,195 for the six-month period ended
June 30, 2019, from a loss of $3,585,252 for the six-month period ended June 30, 2018, as a result of the factors described above.

Income
tax expense.Income tax expense was $3,235 and $4,062 for the six-month period ended June 30, 2019
and 2018, respectively, mainly due to California franchise tax and foreign subsidiary’s income tax expenses.

Total
comprehensive loss. As a result of the cumulative effect of the factors described above, our total comprehensive
loss increased by $10,140 to $3,603,136 for the six-month period ended June 30, 2019, from $3,592,996 for the six-month period
ended June 30, 2018.

Liquidity
and Capital Resources

As of June 30, 2019, we had cash and cash equivalents of $6,005,967.
To date, we have financed our operations primarily through cash proceeds from financing activities, including through our ongoing
public offering, short-term borrowings and equity contributions by our stockholders.

Net cash used for operating activities
was $840,311 for the six months ended June 30, 2019, as compared to $4,819,801 for the six months ended June 30, 2018. In
addition to the net loss of $4,068,430, the increase in net cash used for operating activities during the six-month period ended
June 30, 2019 was mainly due to increase in accounts receivable and inventory of $1,209,964 and $386,750, respectively, and decrease
in other payable – related parties of $418,091, offset by the decrease in temporary deposit – related party of $100,067
and increase in accounts payable, accrued expense and other payable - others of $1,587,222, $743,910 and $1,458,198, respectively.
In addition to the net loss of $3,589,314, the decrease in net cash used for operating activities during the six-month period
ended June 30, 2018 was mainly due to increase in prepaid expenses of $666,712 and decrease in accrued expenses, other payable
– related parties and other payable - others of $220,042, $166,919 and $1,252,209, respectively, offset by the increase
in other receivable – related party and deposits - others of $46,743 and $93,548, respectively.

26

Investing
Activities

Net
cash used for investing activities for the six months ended June 30, 2019 was $2,297 as compared to $18,379,752 for the six
months ended June 30, 2018. The net cash used for investing activities for the six months ended June 30, 2019 was mainly for the
purchase of property and equipment. The net cash used for investing activities for the six months ended June 30, 2018 was mainly
due to the $18 million deposits paid toward the purchase of a parcel of land to build our first satellite ground station and data
center.

Financing
Activities

Net cash provided by financing activities
for the six months ended June 30, 2019 and 2018 was $6,294,972 and $23,762,346, respectively. Net cash provided by financing activities
for the six months ended June 30, 2019 were mainly attributable to net proceeds from the issuance of common stock from ongoing
public offering, borrowing of short-term loans from affiliates and a long-term loan in the amounts of $6,047,630, 194,600 and 47,742.
Net cash provided by financing activities for the six months ended June 30, 2018 were mainly attributable to proceeds from
the issuance of common stock from public offering, issuance of stock warrants related to the public offering and increase in subscribed
capital in the amounts of $23,223,979, $492,367 and $56,000, respectively, offset by the repayment of short-term bank loan of $10,000.

On
May 14, 2018, we entered into an underwriting agreement with Boustead Securities, LLC in connection with the public offering,
issuance and sale of up to 1,411,765 shares of our common stock on a best efforts basis, with a minimum requirement of 117,647
shares, at the public offering price of $42.50 per share, less underwriting discounts, for minimum gross proceeds $5,000,000 and
up to a maximum of $60,000,000. We also granted Boustead Securities, LLC an over-subscription option, exercisable on or prior
to the offering termination date to extend the offering for an additional 45 days, pursuant to which we may sell up to 211,764
additional shares of the common stock at the public offering price, less underwriting discounts. The material terms of this offering
are described in the prospectus, dated May 14, 2018, filed by us with the Securities and Exchange Commission, or the SEC, on May
14, 2018 pursuant to Rule 424(b) under the Securities Act. This offering is registered with the SEC pursuant to a Registration
Statement on Form S-1, as amended and supplemented to date (File No. 333-222208), initially filed by us on December 20, 2017.

As
of June 30, 2019, we held 12 closings of this offering, pursuant to which we issued and sold an aggregate of 1,176,980 shares
of common stock for gross proceeds of approximately $50.02 million, or net proceeds of approximately $45.86 million after underwriting
discounts, commissions and offering expenses payable by us. The offering period for this public offering expired on January 4,
2019 and we filed a post-effective amendment No. 2 with the SEC on April 23, 2019 to extend the public offering to attempt to
raise the remaining $16.44 million that had not yet been sold. On May 17, 2019, the Company filed a post-effective amendment
No. 3 with the SEC to extend the Offering subsequently, and which was declared effective by the SEC on May 23. 2019.

On
May 9, 2019, two of our current shareholders (the “Lenders”) each committed to provide us a $10 million bridge loan
(the “Loans”) for an aggregate principal amount of $20 million, to bridge our cash flow needs prior to our obtaining
a mortgage loan to be secured by a parcel of land (the “Land”) we intend to purchase. The Land consists of approximately
6.36 acres of undeveloped land located at the Taishui Grottoes in the Xinyi District of Keelung City, Taiwan. Aerkomm Taiwan has
contracted to purchase the Land for NT$1,056,297,507, or US$34,474,462, and as of July 3, 2019 we have paid the purchase price
for the Land in full. The Loans will be secured by the Land with the initial closing date of the Loans to be a date, designated
by us, within 30 days following the date that the title for the Land is fully transferred to and vested in our subsidiary, Aerkomm
Taiwan. The Loans shall bear interest, non-compounding, at the Bank of America Prime Rate plus 1%, annually, calculated on the
actual number of days the Loans are outstanding and based on a 365-day year and shall be due and payable upon the earlier of (1)
the date of our (or our subsidiary, Aerkomm Taiwan) obtaining a mortgage loan secured by the Land with a principal amount of not
less than $20 million and (2) one year following the initial closing date of the Loans. The Lenders also agreed to an earlier
closing of up to 25% of the principal amounts of the Loans upon our request prior to the time that title to the Land is vested
in our subsidiary, Aerkomm Taiwan, provided that we provide adequate evidence to the Lenders that the proceeds of such an earlier
closing would be applied to pay our vendors. We, of course, cannot provide any assurances that we will be able to raise sufficient
additional finds in our public offering to complete our acquisition of the Land or to obtain a mortgage on the Land if and when
it is acquired.

On
July 10, 2018, in conjunction with the Land acquisition, we entered into a binding letter of commitment with Metro Investment
Group Limited, or MIGL, pursuant to which we agreed to pay MIGL an agent commission of four percent (4%) of the full purchase
price of the Land, equivalent to approximately US$1,387,127, for MIGL’s services provided with respect to the acquisition.
The commission must be paid to MIGL no later than 90 days following payment in full of the purchase price. If there is a delay
in payment, we shall be responsible for punitive liquidated damages at the rate of one tenth of one percent (0.1%) of the commission
per day of delay with a maximum cap to these damages of five percent (5%). Under applicable Taiwanese law, the commission is due
and payable upon signing of the letter of commitment even if the contract is cancelled for any reason and the acquisition is not
completed. We have recorded the estimated commission to the cost of land and will be paying the amount no later than 90 days following
full payment of the purchase price. On May 9, 2019, we amended the binding letter of commitment with MIGL to extend the
payment to be paid after the full payment of the Land acquisition price until no later than December 31, 2020.

With
the $9.98 million to be raised in the remainder of our ongoing public offering (assuming we are successfully able to complete
the public offering) and the $20 million in Loans committed to us by the Lenders, we believe our available working capital will
be sufficient to sustain our current financial obligations for the next twelve months. However, even if we successfully raise
sufficient capital to satisfy our needs over the next twelve months, following that period we will require additional cash resources
for the implementation of our strategy to expand our business or for other investments or acquisitions we may decide to pursue.
If our internal financial resources are insufficient to satisfy our capital requirements, we will need seek to sell additional
equity or debt securities or obtain additional credit facilities, although there can be no assurances that we will be successful
in these efforts. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness
would result in increased debt service obligations and could require us to agree to operating and financial covenants that would
restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us
to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could
harm our overall business prospects.

27

The
Company has not generated significant revenues, excluding non-recurring revenues from affiliates in the second quarter of fiscal
2018, and will incur additional expenses as a result of being a public reporting company. For the six-month period ended June
30, 2019, the Company incurred a comprehensive loss of $3,615,778 and had working capital of $1,767,871 as of June 30, 2019. Currently,
the Company has taken measures, as discussed above, that management believes will improve its financial position by financing
activities, including through our ongoing public offering, short-term borrowings and equity contributions.

Capital
Expenditures

Our
operations continue to require significant capital expenditures primarily for technology development, equipment and capacity expansion.
Capital expenditures are associated with the supply of airborne equipment to our prospective airline partners, which correlates
directly to the roll out and/or upgrade of service to our prospective airline partners’ fleets. Capital spending is also
associated with the expansion of our network, ground stations and data centers and includes design, permitting, network equipment
and installation costs.

Capital
expenditures for the six months ended June 30, 2019 and 2018 were $2,297 and $18,379,752, respectively.

We
anticipate an increase in capital spending in our fiscal year ended December 31, 2019 and estimate that capital expenditures will
range from $6 million to $60 million as we begin airborne equipment installations and continue to execute our expansion strategy.

Inflation

Inflation
and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will
materially affect our business in the foreseeable future. However, our management will closely monitor price changes in our industry
and continually maintain effective cost control in operations.

Off
Balance Sheet Arrangements

We
do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital
resources that is material to an investor in our securities.

Seasonality

Our
operating results and operating cash flows historically have not been subject to significant seasonal variations. This pattern
may change, however, as a result of new market opportunities or new product introductions.

Critical
Accounting Policies

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and
related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant
to the preparation of our financial statements. These accounting policies are important for an understanding of our financial
condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial
condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result
of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the
possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe
the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our
financial statements:

Right-of-Use Asset and Lease Liability.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which modifies
lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease
liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information
about leasing arrangements.

A lessee should recognize the lease liability
to make lease payments and the right-of-use asset representing its right to use the underlying asset for the lease term. For operating
leases, a right-of-use asset and a lease liability are initially measured at the present value of the lease payments. The amortization
of the right-of-use asset is allocated over the lease term generally on a straight-line basis.

For the lease within a term of twelve months
or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets
and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line
basis over the lease term. The Company adopted ASU 2016-02 effective January 1, 2019.

28

Income Taxes. Income taxes
are accounted for under the asset and liability method. Deferred tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Adjustments to prior period’s income tax liabilities are added to or deducted from the current period’s tax provision.

The Company follows FASB guidance on uncertain
tax positions and has analyzed its filing positions in all the federal, state and foreign jurisdictions where it is required to
file income tax returns, as well as all open tax years in those jurisdictions. The Company files income tax returns in the US federal,
state and foreign jurisdictions where it conducts business. The Company believes that its income tax filing positions and deductions
will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on its consolidated
financial position, results of operations, or cash flows. Therefore, no reserves for uncertain tax positions have been recorded.
The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

The Company’s policy for recording
interest and penalties associated with any uncertain tax positions is to record such items as a component of income before taxes.
Penalties and interest paid or received, if any, are recorded as part of other operating expenses in the consolidated statement
of operations.

Foreign Currency Transactions.
Foreign currency transactions are recorded in U.S. dollars at the exchange rates in effect when the transactions occur. Exchange
gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies
are recognized in current income. At the end of each period, assets and liabilities denominated in foreign currencies are revalued
at the prevailing exchange rates with the resulting gains or losses recognized in income for the period.

Earnings (Loss) Per Share.Basic
earnings (loss) per share is computed by dividing income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders
by the weighted-average number of shares of common outstanding during the period increased to include the number of additional
shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive
securities include stock warrants and outstanding stock options, shares to be purchased by employees under the Company’s
employee stock purchase plan.

Revenue Recognition. We recognize
revenue when performance obligations identified under the terms of contracts with our customers are satisfied, which generally
occurs upon the transfer of control in accordance with the contractual terms and conditions of the sale. Our major revenue for
the three-month and six-month periods ended June 30, 2019 was the sales of compact adaptor for smartphone that allows users to
turn their smartphone into a satellite smartphone to provide reliable connectivity beyond the coverage of traditional networks.
The majority of our revenue is recognized at a point in time when product is shipped or service is provided to the customer. Revenue
is measured as the amount of consideration we expect to receive in exchange for transferring goods, which includes estimates for
variable consideration.

Inventories.
Inventories are recorded at the lower of weighted-average cost or net realizable value. We assess the impact of changing technology
on our inventory on hand and writes off inventories that are considered obsolete. Estimated losses on scrap and slow-moving items
are recognized in the allowance for losses.

Research
and Development Costs. Research and development costs are charged to operating expenses as incurred. For the six-month
periods ended June 30, 2019 and 2018, we incurred approximately $416,231 and $237,650 of research and development costs, respectively.

29

Property
and Equipment. Property and equipment are stated at cost less accumulated depreciation. When value impairment is determined,
the related assets are stated at the lower of fair value or book value. Significant additions, renewals and betterments are capitalized.
Maintenance and repairs are expensed as incurred. Depreciation is computed by using the straight-line and double declining method
over the following estimated service lives: computer equipment - 3 to 5 years, furniture and fixtures - 5 years, satellite equipment
– 5 years, vehicles – 5 years and lease improvement – 5 years. Construction costs for on-flight entertainment
equipment not yet in service are recorded under construction in progress. Upon sale or disposal of property and equipment, the
related cost and accumulated depreciation are removed from the corresponding accounts, with any gain or loss credited or charged
to income in the period of sale or disposal. We review the carrying amount of property and equipment for impairment when events
or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We determined that there
was no impairment loss for the six-month periods ended June 30, 2019 and 2018.

Goodwill
and Purchased Intangible Assets. Goodwill represents the amount by which the total purchase price paid exceeded the estimated
fair value of net assets acquired from acquisition of subsidiaries. We test goodwill for impairment on an annual basis, or more
often if events or circumstances indicate that there may be impairment. Purchased intangible assets with finite life are amortized
on the straight-line basis over the estimated useful lives of respective assets. Purchased intangible assets with indefinite life
are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not
be recoverable. Purchased intangible asset consists of satellite system software and is amortized over 10 years.

Fair
Value of Financial Instruments. We utilize the three-level valuation hierarchy for the recognition and disclosure of fair
value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input
that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

Level
1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that
we have the ability to access at the measurement date.

Level
2 - Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices
in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially
the full term of the instrument.

Level
3 - Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants
could use in pricing the asset or liability at the measurement date, including assumptions.

The
carrying amounts of our cash, accounts receivable, other receivable, short-term loans, accounts payable, and other payable approximated
their fair value due to the short-term nature of these financial instruments.

Translation
Adjustments. If a foreign subsidiary’s functional currency is the local currency, translation adjustments
will result from the process of translating the subsidiary’s financial statements into the reporting currency of our company.
Such adjustments are accumulated and reported under other comprehensive income (loss) as a separate component of stockholder’s
equity.

Recent
Accounting Pronouncements

Financial
Instruments. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments”, which modifies the measurement of expected credit losses of certain
financial instruments. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. We are currently evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.

Intangibles.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other” (Topic 350): Simplifying the
Test for Goodwill Impairment, which goodwill shall be tested at least annually for impairment at a level of reporting referred
to as a reporting unit. ASU 2017-04 will be effective for annual periods beginning after December 15, 2019. We are currently evaluating
the impact of adopting ASU 2017-04 on our consolidated financial statements.

30

ITEM
3.

QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not
applicable.

ITEM
4.

CONTROLS
AND PROCEDURES.

Evaluation
of Disclosure Controls and Procedures

We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures
refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer
and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As
required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under
the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures, as of June 30, 2019.

Based
upon, and as of the date of this evaluation, our chief executive officer and chief financial officer determined that, because
of the material weaknesses described in Item 9A “Controls and Procedures” of our Transition Report on Form 10-KT filed
on April 1, 2019 for the transition period from March 1, 2018 through December 31, 2018 and further referenced below, which we
are still in the process of remediating as of June 30, 2019, our disclosure controls and procedures were not effective.

Changes
in Internal Control Over Financial Reporting

We
regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve
controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include
such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During
its evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2019, our management identified
the following material weaknesses:

●

We
do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience
in the application of accounting principles generally accepted in the United States commensurate with our financial reporting
requirements. To mitigate the current limited resources and limited employees, we rely heavily on the use of external legal
and accounting professionals.

In
order to cure the foregoing material weakness, we have taken or plan to take the following remediation measures:

●

On
November 5, 2018, we added a staff accountant with a CPA and technical accounting expertise to further support our current
accounting personnel. As necessary, we will continue to engage consultants or outside accounting firms in order to ensure
proper accounting for our consolidated financial statements.

We
intend to complete the remediation of the material weakness discussed above as soon as practicable but we can give no assurance
that we will be able to do so. Designing and implementing an effective disclosure controls and procedures is a continuous effort
that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to devote
significant resources to maintain a financial reporting system that adequately satisfies our reporting obligations. The remedial
measures that we have taken and intend to take may not fully address the material weakness that we have identified, and material
weaknesses in our disclosure controls and procedures may be identified in the future. Should we discover such conditions, we intend
to remediate them as soon as practicable. We are committed to taking appropriate steps for remediation, as needed.

All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Other
than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls
over financial reporting during quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

31

PART
II

OTHER
INFORMATION

ITEM
1.

LEGAL
PROCEEDINGS.

There
were no material developments during the quarter ended June 30, 2019 to the legal proceedings previously disclosed in Item 3 “Legal
Proceedings” of our Transition Report on Form 10-KT filed on April 1, 2019.

ITEM
1A.

RISK
FACTORS.

For
information regarding risk factors, please refer to our Transition Report on Form 10-KT for the period from March 31, 2018 through
December 31, 2018 filed with the SEC on April 1, 2019.

ITEM
2.

UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We
have not sold any equity securities during the quarter ended June 30, 2019 that were not previously disclosed in a current report
on Form 8-K that was filed during the quarter.

On
December 21, 2018, we repurchased an aggregate of 104,413 unvested shares of our
restricted common stock for a purchase price of $0.0067 per share.

ITEM
3.

DEFAULTS
UPON SENIOR SECURITIES.

None.

ITEM
4.

MINE
SAFETY DISCLOSURES.

Not
applicable.

ITEM
5.

OTHER
INFORMATION.

Subsequent
Events

On
July 2, 2019, our board of directors approved a supplement to our engagement agreement with one of our service providers pursuant
to which we agreed to issue to the service provider 23,972 restricted shares of our common stock in consideration of that service
provider’s agreement to defer the receipt of payment of certain accrued fees due to the service provider.

We
have no information to disclose that was required to be in a report on Form 8-K during the quarter ended June 30, 2019 but was
not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board
of directors.